Intrinsic value of Advantage Oil&Gas - AAV

Previous Close

$3.45

  Intrinsic Value

$1.21

stock screener

  Rating & Target

str. sell

-65%

Previous close

$3.45

 
Intrinsic value

$1.21

 
Up/down potential

-65%

 
Rating

str. sell

We calculate the intrinsic value of AAV stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  23.40
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  116
  118
  121
  124
  128
  132
  136
  140
  145
  151
  157
  163
  169
  176
  184
  192
  200
  209
  219
  228
  239
  250
  262
  274
  287
  301
  315
  330
  346
  363
  381
Variable operating expenses, $m
 
  91
  93
  95
  98
  101
  104
  108
  112
  116
  120
  125
  130
  135
  141
  147
  154
  160
  168
  175
  183
  192
  201
  210
  220
  231
  242
  253
  265
  278
  292
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  131
  91
  93
  95
  98
  101
  104
  108
  112
  116
  120
  125
  130
  135
  141
  147
  154
  160
  168
  175
  183
  192
  201
  210
  220
  231
  242
  253
  265
  278
  292
Operating income, $m
  -15
  28
  28
  29
  30
  31
  32
  33
  34
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  81
  85
  89
EBITDA, $m
  71
  115
  118
  121
  124
  128
  132
  137
  141
  147
  152
  158
  165
  172
  179
  187
  195
  203
  213
  222
  232
  243
  255
  267
  279
  292
  306
  321
  337
  353
  370
Interest expense (income), $m
  7
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  21
  22
  23
  24
Earnings before tax, $m
  -15
  23
  23
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  54
  56
  59
  62
  64
Tax expense, $m
  -3
  6
  6
  6
  7
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
Net income, $m
  -12
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,108
  1,127
  1,153
  1,182
  1,216
  1,253
  1,293
  1,337
  1,385
  1,436
  1,491
  1,550
  1,613
  1,680
  1,751
  1,827
  1,907
  1,991
  2,081
  2,176
  2,276
  2,381
  2,492
  2,610
  2,733
  2,863
  3,000
  3,145
  3,296
  3,456
  3,624
Adjusted assets (=assets-cash), $m
  1,108
  1,127
  1,153
  1,182
  1,216
  1,253
  1,293
  1,337
  1,385
  1,436
  1,491
  1,550
  1,613
  1,680
  1,751
  1,827
  1,907
  1,991
  2,081
  2,176
  2,276
  2,381
  2,492
  2,610
  2,733
  2,863
  3,000
  3,145
  3,296
  3,456
  3,624
Revenue / Adjusted assets
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
Average production assets, $m
  1,073
  1,094
  1,119
  1,148
  1,180
  1,216
  1,255
  1,298
  1,344
  1,394
  1,448
  1,505
  1,566
  1,631
  1,700
  1,773
  1,851
  1,933
  2,020
  2,112
  2,209
  2,312
  2,420
  2,534
  2,654
  2,780
  2,913
  3,053
  3,200
  3,355
  3,518
Working capital, $m
  -15
  -15
  -16
  -16
  -16
  -17
  -18
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
Total debt, $m
  113
  116
  121
  127
  134
  141
  149
  157
  166
  176
  187
  198
  210
  223
  237
  252
  267
  283
  301
  319
  338
  359
  380
  403
  427
  452
  478
  506
  535
  566
  598
Total liabilities, $m
  213
  217
  222
  228
  235
  242
  250
  258
  267
  277
  288
  299
  311
  324
  338
  353
  368
  384
  402
  420
  439
  460
  481
  504
  528
  553
  579
  607
  636
  667
  699
Total equity, $m
  894
  909
  930
  954
  981
  1,011
  1,043
  1,079
  1,117
  1,159
  1,203
  1,251
  1,302
  1,356
  1,413
  1,474
  1,539
  1,607
  1,679
  1,756
  1,837
  1,922
  2,011
  2,106
  2,206
  2,311
  2,421
  2,538
  2,660
  2,789
  2,925
Total liabilities and equity, $m
  1,107
  1,126
  1,152
  1,182
  1,216
  1,253
  1,293
  1,337
  1,384
  1,436
  1,491
  1,550
  1,613
  1,680
  1,751
  1,827
  1,907
  1,991
  2,081
  2,176
  2,276
  2,382
  2,492
  2,610
  2,734
  2,864
  3,000
  3,145
  3,296
  3,456
  3,624
Debt-to-equity ratio
  0.126
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.150
  0.150
  0.150
  0.160
  0.160
  0.160
  0.160
  0.170
  0.170
  0.170
  0.180
  0.180
  0.180
  0.180
  0.190
  0.190
  0.190
  0.190
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
Adjusted equity ratio
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -12
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
Depreciation, amort., depletion, $m
  86
  88
  90
  92
  94
  97
  100
  104
  108
  112
  116
  120
  125
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  212
  222
  233
  244
  256
  268
  281
Funds from operations, $m
  129
  104
  106
  109
  112
  115
  119
  123
  127
  132
  137
  142
  148
  154
  160
  167
  174
  182
  190
  198
  207
  217
  227
  237
  248
  260
  272
  285
  299
  313
  328
Change in working capital, $m
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from operations, $m
  129
  104
  107
  110
  113
  116
  120
  124
  128
  133
  138
  143
  149
  155
  161
  168
  175
  183
  191
  200
  209
  218
  228
  239
  250
  262
  274
  287
  301
  316
  331
Maintenance CAPEX, $m
  0
  -86
  -88
  -90
  -92
  -94
  -97
  -100
  -104
  -108
  -112
  -116
  -120
  -125
  -130
  -136
  -142
  -148
  -155
  -162
  -169
  -177
  -185
  -194
  -203
  -212
  -222
  -233
  -244
  -256
  -268
New CAPEX, $m
  -94
  -21
  -25
  -29
  -32
  -36
  -39
  -43
  -46
  -50
  -54
  -57
  -61
  -65
  -69
  -73
  -78
  -82
  -87
  -92
  -97
  -102
  -108
  -114
  -120
  -126
  -133
  -140
  -147
  -155
  -163
Cash from investing activities, $m
  -94
  -107
  -113
  -119
  -124
  -130
  -136
  -143
  -150
  -158
  -166
  -173
  -181
  -190
  -199
  -209
  -220
  -230
  -242
  -254
  -266
  -279
  -293
  -308
  -323
  -338
  -355
  -373
  -391
  -411
  -431
Free cash flow, $m
  35
  -3
  -6
  -9
  -12
  -14
  -17
  -20
  -22
  -25
  -27
  -30
  -33
  -36
  -38
  -41
  -44
  -47
  -51
  -54
  -57
  -61
  -65
  -68
  -73
  -77
  -81
  -86
  -90
  -96
  -101
Issuance/(repayment) of debt, $m
  -29
  3
  5
  6
  6
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
Issuance/(repurchase) of shares, $m
  0
  0
  4
  7
  9
  12
  14
  16
  19
  21
  23
  26
  28
  31
  33
  36
  38
  41
  44
  47
  50
  53
  57
  60
  64
  67
  71
  75
  79
  84
  89
Cash from financing (excl. dividends), $m  
  -35
  3
  9
  13
  15
  19
  22
  24
  28
  31
  34
  37
  40
  44
  47
  51
  53
  57
  61
  65
  69
  73
  78
  83
  88
  92
  97
  103
  108
  115
  121
Total cash flow (excl. dividends), $m
  0
  1
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
Retained Cash Flow (-), $m
  -64
  -15
  -21
  -24
  -27
  -30
  -33
  -36
  -38
  -41
  -44
  -48
  -51
  -54
  -57
  -61
  -65
  -68
  -72
  -76
  -81
  -85
  -90
  -95
  -100
  -105
  -111
  -116
  -122
  -129
  -136
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -15
  -18
  -20
  -23
  -25
  -28
  -30
  -33
  -35
  -38
  -40
  -43
  -46
  -49
  -52
  -55
  -58
  -62
  -65
  -69
  -72
  -76
  -81
  -85
  -89
  -94
  -99
  -104
  -110
  -115
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  -14
  -16
  -18
  -19
  -20
  -20
  -20
  -20
  -20
  -20
  -19
  -18
  -17
  -16
  -15
  -14
  -13
  -11
  -10
  -9
  -7
  -6
  -5
  -4
  -3
  -3
  -2
  -2
  -1
  -1
Current shareholders' claim on cash, %
  100
  100.0
  99.4
  98.4
  97.1
  95.5
  93.7
  91.7
  89.5
  87.2
  84.8
  82.4
  79.8
  77.3
  74.7
  72.2
  69.6
  67.1
  64.6
  62.2
  59.8
  57.4
  55.2
  53.0
  50.8
  48.7
  46.7
  44.8
  42.9
  41.1
  39.3

Advantage Oil & Gas Ltd. is an intermediate natural gas and liquids development and production company. The Company is engaged in the business of natural gas exploitation, development, acquisition and production in the Province of Alberta. The Company focuses on the development of Montney resource play at Glacier, Alberta in Western Canada. The Company has drilled over 10 Montney gas wells. The Glacier property lies along the Alberta side of the border with British Columbia between Grande Prairie, Alberta and Dawson Creek, British Columbia. The primary zones of interest are within the Triassic Montney and Doig formation siltstones. The Glacier property consists of over 90 net sections of land with Doig/Montney interests. It owns and operates a gas plant located at 5-02-76-12W6. It also holds interest in approximately 20 additional sections of Doig/Montney land rights in the Glacier, Valhalla and Wembley area proximal to its existing land holdings.

FINANCIAL RATIOS  of  Advantage Oil&Gas (AAV)

Valuation Ratios
P/E Ratio -53.1
Price to Sales 5.5
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 4.9
Price to Free Cash Flow 18.2
Growth Rates
Sales Growth Rate 23.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -33.8%
Cap. Spend. - 3 Yr. Gr. Rate -2.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 12.6%
Total Debt to Equity 12.6%
Interest Coverage -1
Management Effectiveness
Return On Assets -0.6%
Ret/ On Assets - 3 Yr. Avg. 1%
Return On Total Capital -1.2%
Ret/ On T. Cap. - 3 Yr. Avg. 0.5%
Return On Equity -1.4%
Return On Equity - 3 Yr. Avg. 0.7%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 87.1%
Gross Margin - 3 Yr. Avg. 88.3%
EBITDA Margin 67.2%
EBITDA Margin - 3 Yr. Avg. 88.9%
Operating Margin -12.9%
Oper. Margin - 3 Yr. Avg. 20.6%
Pre-Tax Margin -12.9%
Pre-Tax Margin - 3 Yr. Avg. 20.6%
Net Profit Margin -10.3%
Net Profit Margin - 3 Yr. Avg. 4.9%
Effective Tax Rate 20%
Eff/ Tax Rate - 3 Yr. Avg. 25.6%
Payout Ratio 0%

AAV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AAV stock intrinsic value calculation we used $116 million for the last fiscal year's total revenue generated by Advantage Oil&Gas. The default revenue input number comes from 2016 income statement of Advantage Oil&Gas. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AAV stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for AAV is calculated based on our internal credit rating of Advantage Oil&Gas, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Advantage Oil&Gas.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AAV stock the variable cost ratio is equal to 76.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AAV stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.3% for Advantage Oil&Gas.

Corporate tax rate of 27% is the nominal tax rate for Advantage Oil&Gas. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AAV stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AAV are equal to 924.6%.

Life of production assets of 12.5 years is the average useful life of capital assets used in Advantage Oil&Gas operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AAV is equal to -12.9%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $894 million for Advantage Oil&Gas - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 184.763 million for Advantage Oil&Gas is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Advantage Oil&Gas at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ Advantage Announces 2018 Budget   [Dec-11-17 06:28PM  CNW Group]
▶ Advantage Oil & Gas posts 2Q profit   [Aug-05-17 01:09AM  Associated Press]
▶ Advantage Oil & Gas reports 4Q loss   [Mar-03-17 05:00AM  Associated Press]
▶ Advantage Announces 2016 Year-End Reserves   [Feb-07-17 09:28PM  PR Newswire]
▶ Advantage Announces 2017 Budget and Development Plan   [Nov-28-16 08:24PM  PR Newswire]
▶ Advantage Announces Third Quarter 2016 Results   [Nov-03-16 05:55PM  PR Newswire]
▶ Advantage Provides Q3 2016 Operational Update   [Oct-12-16 10:05PM  PR Newswire]
▶ LNG Approval Is Not Too Late: Advantage Oil & Gas CEO   [Sep-28-16 05:37PM  at Bloomberg]
▶ Advantage Announces Second Quarter 2016 Results   [Aug-04-16 08:54PM  PR Newswire]
▶ [$$] Thailands Duty-Free King Buys Controlling Stake in Thai AirAsia   [Jun-15-16 12:27AM  at The Wall Street Journal]
▶ [$$] Thailand's Duty-Free King Buys Controlling Stake in Thai AirAsia   [Jun-14-16 05:34PM  at The Wall Street Journal]
▶ Advantage Announces First Quarter 2016 Results   [May-05-16 07:56PM  PR Newswire]
▶ Advantage Announces Closing of Equity Financing   [Mar-08-16 08:27AM  CNW Group]
▶ Advantage Announces 2015 Year-End Reserves   [Feb-16-16 06:00AM  PR Newswire]
Financial statements of AAV
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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